Facts
DBP and PNB foreclosed NMIC’s properties which made the former as the majority stockholder of the latter. NMIC then engaged the services of Hercon/HRCC. NMIC failed to pay Hercon/HRCC. After default and several demands, Hercon sued NMIC, DBP and PNB to be solidarily liable. Cory Aquino then privatized DBP/PNB, transferring their shares to the Asset Privatization Trust (APT). HRCC amended its complaint and included APT as defendant.
Issue
Are DBP/PNB/APT liable to HRCC? Is the corporate veil covering NMIC pierced and reached DBP/PNB/APT?
Ruling
No. To determine if the veil is pierced, the Supreme Court uses a three-pronged test:
- Instrumentality or Control Test – is the subsidiary corporation (NMIC) under the full control and domination of the parent entity (DBP/PNB)? Does the subsidiary have no autonomy? Does it have no separate mind, will, or existence?
- Fraud Test – did the controlling parent entity use the subsidiary corporation to employ fraud against the plaintiff-creditor? Was the subsidiary used to make an unlawful or unjust act?
- Harm Test – did the parent’s control over the subsidiary caused harm to the plaintiff-creditor?
Using the 3 tests above, the answers are all ”no.” PNB and DBP are mere owners of the majority of the stocks of NMIC, which is not sufficient to pierce the corporate veil.
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